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Chinese PMIs pose another risk to the Aussie – Forex News Preview
January 30, 2018 4:26 pmVideo
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China’s official manufacturing and non-manufacturing PMIs for the month of January are both scheduled for release on Wednesday at 0100 GMT. According to forecasts, the manufacturing index is set to tick down, while the non-manufacturing print is anticipated to remain unchanged, albeit at a level consistent with healthy expansion in the sector.
Even though a slight slowdown in manufacturing activity would normally be perceived as a discouraging development for the Chinese economy, this may not be the case this time around. The economics community seems to be almost unanimous in anticipating Chinese economic growth to slow this year, as the nation restricts credit growth in order to deleverage the economy and address the financial stability risks that have been building in recent years. Bearing this in mind, a slight deceleration in the growth pace of the manufacturing industry could be perceived as normal, and may thus have little immediate impact in financial markets.
That said, however, any potential surprises in these prints do have the capacity to spur market movements. A more pronounced slowdown in manufacturing activity than what is anticipated, for example, or an unexpected downturn in the non-manufacturing index, could trigger a negative reaction in the yuan as well as in the Australian dollar. The Aussie is considered a liquid proxy for China’s economic performance, as developments in China can have a major impact on Australia too, due to the close trading relationship between the two nations. Thus, a downside surprise in China’s PMIs may push aussie/dollar lower. A potential downside break of the 0.8040 barrier – Tuesday’s low with the area around it being congested in previous months – could pave the way for more downside extensions, perhaps towards the 0.8000 psychological territory.
On the other hand, should these data come in stronger than projected, we may see some concerns regarding a slowdown in China subside, triggering a positive reaction in aussie/dollar. In this scenario, buyers could push the pair higher for a test of its recent highs at 0.8135. If they prove strong enough to overcome that hurdle, then 0.8165 may be the next level to provide some resistance.
Finally, it should be noted that half an hour prior to the release of the Chinese PMIs (at 0030 GMT), Australia’s inflation data for the fourth quarter will be released as well. Thus, any market movement in aussie/dollar at around that time may be affected by those prints too, as they could determine whether Australia’s central bank will shift to an optimistic tone sometime soon, or whether it will remain sidelined for a while longer.
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